OPEC and non-OPEC states are producing too much oil: Gulf Intelligence survey

Created: Monday, 12 November 2018 12:00

Brent crude oil prices soared to US$85 a barrel in early October in anticipation of US sanctions being re-imposed on Iran. (Image source: John Cameron/Unsplash)‘The OPEC and non-OPEC alliance of 25 countries are currently producing too much oil to reverse an oil price decline that has seen Brent crude fall by about US$10 a barrel over the last month and reduce their total revenue by US$500mn a day’

The above statement was quoted by 66 per cent of respondents to a Gulf Intelligence GIQ Oil Markets Survey of 100 energy industry professionals.

OPEC, which pumps about one-third of global supply, agreed in June to increase its total oil supply by one mmbbl a day as the balance between supply and demand had tightened significantly through 2017 and the first half of this year as producers kept barrels off the market in an attempt to deflate a global oil glut and return inventories to historic averages.

Brent crude oil prices soared to US$85 a barrel in early October in anticipation of US sanctions being re-imposed on Iran on 5 November and forcing their crude oil exports of two mmbbl day off the international markets, triggering international traders such as Mercuria and Trafigura to warn prices could reach US$100 a barrel by year’s end because there was no available replacement to Iranian oil.

Sean Evers, managing partner, Gulf Intelligence, said, “The severity of US sanctions has clearly not turned out to be as robust as had been expected with the US offering waivers to 8 countries, including China and India, Asia’s two largest importers.”

“President Trump was very transparent on the matter as he said bluntly in his first press conference after the mid-term elections that he gave the waivers because he wanted to reduce prices that acted ‘like a tax’ on Americans,” he added.

US production of shale oil, which has added five mmbbl of oil to US output over the last decade to move America onto a similar level as Saudi Arabia at around 11mn bpd, has also put downward pressure on oil prices.

Sixty-two per cent of GIQ Survey respondents agreed that the US shale production levels will force Gulf Arab countries into stepping up their own investment in shale oil exploration.

Brent crude oil prices have been rising over the last 2 years after a coalition of 25 OPEC and non-OPEC states agreed in late 2016 to slash oil supplies by 1.8mn barrels a day – prices have averaged at around US$74 a barrel this year, after dropping to an average of US$45 in 2016 and US$54 in 2017.

The coalition of the world’s largest oil producers, which includes Russia, Saudi Arabia and Iran, should extend the Vienna Agreement into a third year to keep prices supported, 88 per cent of those polled in the Gulf Intelligence Survey responded.